Obtaining a particular project can potentially be important for the overall mix of ongoing work or the impact on the contractor’s cash flow. The contractor’s decision is also influenced by the availability of key personnel in the contractor’s organization. The company sometimes wants to reserve its resources for future projects, or is committed to the current opportunity for various reasons. Competitive bidding on construction projects includes decision-making under uncertainty, with one of the greatest sources of uncertainty for each bidder due to the unpredictable nature of its competitors. Any offer made by a contractor for a particular job is determined by a variety of factors, including an estimate of direct labor costs, general overload, management’s confidence in this estimate and its immediate and long-term scope.
In general, exogenous factors such as a contractor’s history and the general economic climate in the construction sector will determine the results of the negotiations. However, a negotiator’s ability may affect the ability to reach an agreement, the profitability of the project, the scope of any dispute, and the possibility of additional work between the participants. Even after a contract has been awarded on the basis of competitive offers, there are many opportunities where follow-up negotiations are needed as conditions change over time. Regardless of the type of construction contract selected by the owner, the contractor acknowledges that the actual construction costs due to imperfect information will never be identical to its own estimate. In addition, it is common for the owner to place orders for work changes to change the original working size for which the contractor will receive additional payments as specified in the contract.
The price of the construction contract includes the direct costs of the project, including field surveillance costs plus the margin imposed by contractors for overhead and income. Factors that influence the price of an installation also depend on the type of installation and location. Within each of the major construction categories, such as housing, commercial buildings, industrial complexes and infrastructure, there are smaller segments with very different environments related to prices.
A comparative cost advantage is most desirable under all circumstances to participate in a bidding competition. Using the data in Example 8-5, determine the actual payment of the owner for each of the seven types of construction contracts for IntelliSpeX construction management software reviews the same U and C conditions. The issue of variation orders ensures that we as quantity meters are kept informed of any changes to the contract and we have the opportunity to assess the variations necessary to determine their monetary effect.
International contract forms, such as some of the FIDIC contracts, are increasingly used, although they are not often used in France today. Negotiating between contracting parties is an important second dispute resolution mechanism. These negotiations can pose the same types of concerns and problems as with original contracts. The negotiation process is usually informal, unstructured and relatively inexpensive. If no agreement is reached between the parties, the ruling is a possible remedy.
Savings from such changes may match the contractor or owner, or may be somehow divided between the two. The terms of the contract should reflect the risk reward objectives of the owners when applying for an alternative design and / or construction technology. While innovations are often sought to save money and time, failed innovations can take extra money and time to correct a previous misjudgment. A construction contract offers both the owner and the builder a binding legal agreement that the work performed will receive the specific amount of the compensation.